Tiger Securities: Tesla and Weilai Q2 are in different situations

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 Tiger Securities: Tesla and Weilai Q2 are in different situations


On the same day, Chinese electric vehicle manufacturer NiO also released Q2 delivery data. In June, the company delivered 3740 units, with a year-on-year increase of 179.1%, and in Q2, 10331 units were delivered, with a year-on-year increase of + 190.8%. In 2020, 46082 and 14169 es8 and ES6 models will be delivered respectively.

Key points of investment

Tesla Q2 production capacity was affected by the shutdown, but recovered quickly, with overall output of - 20% month on month.

The production capacity of Q2 in North America was affected by the epidemic situation and activity shutdown, and the overall output decreased by 20.0% month on month. However, with the smooth operation of the plant in Shanghai, China, Q2 was only shut down for 2 weeks during labor day, which made up for the vacancy in North America. In the future, it is expected to surpass North America and become Teslas global capacity center.

Domestic model improves Teslas overall operating profit. In May, the price cut of model 3 improves the cost performance ratio, which is expected to continue to be the best in mainland China.

Tiger securities investment research team believes that new energy vehicle companies have obvious advantages, but the stock price is divorced from valuation, and excess market liquidity is an important driving factor.

Tesla has a differentiated business model from traditional cars, has a very popular product portfolio, has the most cutting-edge technology research and development strength in automatic driving, and also enjoys an important brand premium. As a star company in the global new energy automobile industry, Teslas share price in the secondary market has been pursued continuously.

It is difficult to match the current stock price if the traditional valuation methods of automobile industry, whether discounted cash flow or multiple of comparable companies, are used.

For Weilai, the most important thing is to cross the red line of scale economy.

Valuation discussion

If Tesla is valued in the traditional way, it will find that the result is far from the current stock price. If the next two years go well, Q2 delivery beyond expectations may be just the beginning. As Tesla does not lack user demand, productivity will determine the companys revenue and profit. In the future, when the production horsepower is fully turned on and is not affected by the outside world, more and more of its revenue and profits exceed the expectation.

We share the view of Professor Aswath Damodaran of NYUs Stern School of business that Tesla is a historic company and that there is no link between stock price changes and valuation.

Risk tips

2. Battery research and development is not as expected

3. The continuous outbreak of the epidemic affects offline consumption

Body part

Q2 is spreading around the world, and most states in North America have closed their manufacturing factories because of the severe disaster. Teslas battery plant in Vermont and its car factory in Fremont, California, both shut down for more than 50 days. Although he was forced to return to work in early May, he was once involved in administrative litigation because he violated the governments ban. In addition, the follow-up activities in the United States also pose a certain threat to factory production, and the capacity of the entire Q2 is affected.

As a result, the overall output of Q2 Tesla decreased by 20.0% month on month. Among them, 75946 units were produced by Model3 / YQ2, which was - 13% month on month; the output of modelx / s was 6326 units, with a month on month ratio of - 58.9%.

However, the smooth operation of the Shanghai plant in China only shut down for two weeks during labor day, making up for the vacancy in North America. In the future, it is expected to surpass North America and become Teslas global capacity center. In July, Tesla also disclosed that Vermonts battery plant capacity had returned to its pre production level.

Tesla has also taken action on the battery, which is very important for its production capacity. Due to the epidemic, Teslas battery day is expected to be held in September 2020, and the planned million mile battery production may become an important topic of the meeting.

Technology development related to battery efficiency will boost consumer confidence in the future. In June, ampere technologies announced a partnership with Tesla to develop a 1 million mile battery (Teslas Roadrunner program), which will change the position of electric vehicles in the industry.

However, the current eight-year 160000 km warranty policy for electric vehicles can fully meet the life cycle and usage habits of most private cars.

However, Musks statement on automatic driving at the world Artificial Intelligence Conference on July 9 deserves more attention. He said that Tesla is expected to complete the basic functions of L5 level automatic driving which are not completed due to legal and technical restrictions this year. The maturity of automatic driving technology will be a great change across industries.

Domestic Model3 improves Teslas overall operating profit and drives incremental price reduction space

With the continuous production of Shanghai plant, the localization process of model 3 is steadily advancing. As the price of domestic model 3 carrying lithium iron phosphate is lower than that in North America, and it has entered the 333 batch of road motor vehicle manufacturers and products announcement issued by the Ministry of industry and information technology, and continues to receive preferential treatment. Therefore, the domestic model is expected to improve the companys profit margin and sales on the basis of reducing the price and improving the cost performance.

In May, the price of Tesla Model 3 standard extended version was reduced from 303000 yuan to 298100 yuan, and 272000 yuan after Exemption and subsidy. Compared with competitive products, the price performance ratio has risen sharply. The sales volume of model 3 is the best, far ahead of other competitive models such as BYD and Weilai.

At the same time, due to the different battery costs, the gross profit margin of domestic model 4 may be as high as 36%, which will drive the overall gross profit of the company to a certain extent. In the future, the proportion of revenue in China will increase, which will significantly improve the overall profit margin of the company.

New energy vehicle companies are dominant stars, but the stock price is divorced from the valuation, and the excess market liquidity is an important driving factor.

There are obvious differences between Tesla and traditional car companies: (1) differentiated business model; (2) very popular product portfolio; (3) cutting edge technology R & D strength in automatic driving; (4) important brand premium.

In terms of t12m, Tesla will produce 100000 vehicles in Q4 in 2017. It is considered that the traditional automobile enterprises have crossed the red line of break even scale economy production. The company officially realized the net profit from net loss in Q3 of 2018. Based on the performance of t12m, it was Q1 in 2020 to move from net loss to net profit.

It is difficult to match the current stock price if the traditional valuation methods of automobile industry, whether discounted cash flow or multiple of comparable companies, are used. After the short squeeze in Q1, Teslas share price reached a new high in Q2, which is related to the current situation of abundant / excessive market liquidity, and also benefited from the secondary markets preference for large technology enterprises.

However, according to the latest short data, Tesla, Weilai short ratio are relatively high. However, the short covering position has also become another driving force for the stock price.

In addition, Teslas investment in technology has given the company room to imagine in addition to automobile manufacturing. Similar to apple, the success of hardware sales largely depends on the software system which has become the industry standard.

The first task of Weilai is to cross the output red line of scale economy

Weilai released Q2 delivery data. In June, the company delivered 3740 sets, with a year-on-year increase of 179.1%, and the overall delivery of Q2 was 10331 sets, with a year-on-year increase of + 190.8%, exceeding 10000 for the first time. In 2020, 46082 and 14169 es8 and ES6 vehicles will be delivered respectively.

The financing efficiency of Weilai will be significantly improved in 2020, with a total of $435 million in financing on February 6, February 14 and March 5, respectively. On June 15, NiO announced that it had completed the additional issuance of 72 million shares at the price of 5.95 per share, and also issued 10.8 million additional subscription rights valid for 30 days, totaling 82.8 million shares. Weilai has completed nearly $927 million in financing this year.

On July 10, the signing ceremony of strategic cooperation between Chinas banks and enterprises was held with six banks, and a comprehensive credit line of 10.4 billion yuan was obtained. As a result, its cash flow pressure has been well eased, and its credit rating has also shifted from C to B. more and more shipping volume also makes its operating cash flow more abundant.

However, Weilai is still in a serious loss, and its gross profit has not yet been obtained. Its production and operation are extremely dependent on financing because it has not yet crossed the red line of scale economy and has not realized profits.

Valuation discussion

Its no wonder that analysts target price gap is very large, ranging from $295 from Xiaomo to $1500 from JMP securities.

There are two reasons for this: one is that the valuation method itself has a large deviation, especially the multiple of P / E, P / s or EV / EBITDA; the other is the difference in the estimation of the companys revenue, profitability and cash flow level. The latter is more important to the former.

The demand of Tesla automobile is not the biggest problem at present, and its bottleneck is still the production capacity. Therefore, it is necessary to predict the revenue and profit in the next 1-2 years from the output. If the Shanghai plant runs perfectly in 2020, by the end of the year, the U.S. plant will be able to run smoothly and meet global demand at the same time.

According to the current Q2 data, Tesla is likely to complete production and delivery at a rate of 10% to 20% higher than previously agreed by Wall Street. In 2020 and 2021, we can also increase the revenue forecast by 20% at the same level. Revenue is expected to be $31 billion and $44.5 billion, and EBITDA is $4.4 billion and $6.7 billion, respectively.

From the perspective of EV / EBITDA, considering that Tesla does not have the same high pension cost as the traditional automobile companies, it can give a higher multiple. If it is 20 times higher than the average level of the automobile industry, the EV of the company in 2020 and 2021 will be 88 billion US dollars and 134 billion US dollars respectively. Using ev to calculate the value of equity, divided by diluted shares in the outflow, the final value of each share is 413 US dollars and 634 US dollars, which is far less than the current price.

And this is a relatively radical assumption.

We agree with Professor Aswath Damodaran that Teslas valuation needs some imagination.

However, we think these imagination spaces are not groundless, because for growth enterprises, any fixed valuation method is not suitable for studying companies with great uncertainty in the future. We are optimistic about Tesla because it can establish software industry standards in addition to the success of hardware sales. It is really difficult to estimate how much profit and cash flow this set of standards will bring to the company in the future.

Risk tips

The governments subsidies for new energy vehicles have decreased, and the cost performance ratio has been reduced

Battery research and development is not as expected

The industry competition is becoming more and more fierce

This document does not constitute and shall not be deemed to constitute any agreement, offer, invitation to offer, opinion or proposal to purchase securities or other financial products. Nothing in this article constitutes an investment, legal, accounting or tax opinion of tiger securities, a statement of whether an investment or strategy is appropriate for your personal situation, or any other recommendation for you.

This document does not constitute and shall not be deemed to constitute any agreement, offer, invitation to offer, opinion or proposal to purchase securities or other financial products. Nothing in this article constitutes an investment, legal, accounting or tax opinion of tiger securities, a statement of whether an investment or strategy is appropriate for your personal situation, or any other recommendation for you.